Hitotsubashi Institute for Advanced Study

HIAS-E-141

New Approach to Estimating the Productivity of
Public Capital: Evidence from 22 OECD Countries

Abstract:

Investigating the productivity of public capital is a long-standing issue in one strand of macroeconomic literature. This study develops a new approach to estimate the output elasticity of public capital using a vector autoregressive (VAR) model with identification restrictions derived from a theoretical model. Our empirical analysis of 22 OECD countries for the period 1960–2019 reveals that public capital accumulation has a positive effect on GDP in both the short- and long- run horizons in all countries, supporting both demand-stimulating and growth-enhancing effects. Furthermore, the estimated output elasticity of public capital lies within a reasonable range, between 0 and 0.5, and, as in the literature, shows substantial differences across countries. Therefore, the proposed methodology is valid for studying public capital productivity.

 

Report No.: HIAS-E-141
Author(s): Hiroshi Morita
Affiliation: Institute of Science Tokyo
Issued Date: October 30, 2024
Keywords: Public capital, Hierarchical panel VAR model, Max share identification.
JEL: E62, H54, C32, C33.
Links: PDF, HERMES-IR, RePEc